BTC BRIEF: First Comprehensive Tax Legislation Would Not Protect Low- and Middle-Income Taxpayers from Tax Increases

By Alexandra Forter SirotaBudget & Tax Center DirectorApril 2013

KEY FINDING

80 percent of taxpayers would see slightly higher taxes under the first comprehensive tax legislation introduced this legislative session, while the top 1 percent of earners would get a tax cut.

The proposal threatens to erode resources for schools, health care and other services North Carolina needs to be economically competitive.

The proposal (Senate Bill 394) would create a flat personal income tax rate of 6 percent, but include a zero percent tax bracket for the first $11,000 of income. It would eliminate some deductions and loopholes, cut the corporate income tax rate to 6 percent, extend the sales tax to services and lower the rate from 4.75 to 4.5 percent, and make changes to the state’s franchise tax.

Creating a flat personal income tax rate will not improve economic growth. It would also erode revenue over the long term.

A zero tax bracket is no substitute for a refundable Earned Income Tax Credit and this plan is insufficient to protect low-income taxpayers from the disproportionate impact they would feel from higher sales taxes.